How Small Banks Can Respond to the Coronavirus Outbreak and Help Businesses Survive

4 steps that community banks can take to respond to the COVID-19 pandemic and help their clients adjust to the economic impacts

Today we find ourselves in the midst of a pandemic that has impacted almost everyone worldwide. The coronavirus (COVID-19) outbreak has resulted in worldwide school and business closures, government-ordered lockdowns, and a sudden shortage of certain household goods. Things are changing by the minute and there’s not yet enough reliable data to make any official conclusions or solid plans for the future.

When it comes to the financial fallout, small businesses, including smaller community banks, will take the biggest hit. They’re scrambling to stay afloat – but with no end in sight, what will this mean for the economy and the credit and lending industry? One thing for sure is that we will be seeing the impact of the coronavirus outbreak for years to come.

I would like to offer some insight on how small banks can adjust to these circumstances and help their clients through the COVID-19 crisis. Below are four steps to help small banks adapt to the new landscape.

1. Offer Deferments to Your Clients

The coronavirus outbreak has already begun to impact the economy, and the loss of income means we are looking at mass delinquencies on the horizon. If tens of thousands of small businesses default on their loans, it’s detrimental to everyone, including creditors.

In order to protect your bottom line, you also need to protect your clients’ bottom lines. You can help them by allowing for any deferment that’s already built into their contract – and offer an additional deferment, even if they’ve maxed out. Not only is this great PR, it also sustains your business because keeping your clients afloat will help keep you afloat.

Even the IRS, which is arguably the least empathetic organization in the country, has extended its deadlines in the wake of COVID-19. Banks must likewise respond to the obvious need and find ways to nurture their client relationships in order to preserve themselves.

2. Consider Small Business Administration (SBA) Loans

Margins are already tight for most small businesses, and this sudden reduction of consumer spending will unfortunately lead to employees being laid off and offices closing. Despite the uncertainty surrounding the coronavirus outbreak, lenders must be prepared with disaster response plans of their own.

Congress is currently considering a proposal that would increase a Treasury Department fund, giving the Federal Reserve access to $350+ billion that could be used for emergency lending programs. This is part of an extensive government rescue package that would provide support to struggling businesses – and banks need to get with the program.

Community banks should be prepared to provide SBA loans, if possible, and see whether emergency loans are a viable option. If your organization cannot provide an SBA loan, bridge that gap and point your clients in the right direction where they can attain one.

This is a time when lenders can build good (and better) relationships with their clients by helping them through the economic turbulence. When a customer has a positive impression of their creditor, they are more likely to repay their debt and maintain a long-term relationship that will be mutually beneficial.

3. Be Creative, Engaged Community Leaders

When it comes to your clients, helping them will help you. Banks should roll up their sleeves and become thought leaders for their communities amid the COVID-19 panic. Consider how your organization is handling the changes, encourage creative brainstorming, and reach out to your clients to provide whatever support you can.

Some of my small business owner friends are paralyzed. Do they shore up business today or focus on the post-lockdown economy? Your small business customers may (or may not) be connected to a large support network or have any marketing budget to speak of these days. Leveraging your organization’s marketing and social network to drive business to your customers will display partnership and leadership. Community banks are just that—in the community.

While the general public is hunkered down (and stocked up) at home, local businesses must find a way to stay relevant and in the mind of the consumer. Your leaders know the market and can assist more than they think. Here are some possible options:

  • Be willing to promote businesses using your organization’s social networks. Share, tag, and promote your lending customers across all platforms. Be unapologetic about it.
  • Share innovative ideas as to how other businesses are overcoming current events. For example:
    • Tuesday, March 24th was ‘Great American Take Out’ day. It was an organic, social media-driven event that was moderately successful to drive business to restaurants. Be on the lookout for those events or create your own.
    • A gym hosted a Zumba class in their parking lot. Everyone was appropriately socially distanced, and all had a good time.
    • Some gyms are lending equipment for customers to take home. If customers feel businesses are helping them out, customers will continue to support that business.
  • Encourage community networking. Host a virtual networking webinar, so business owners can connect and share ideas. Be willing to make connections for those businesses that aren’t as well connected.

Forward-thinking banks will focus on assisting businesses in adapting to the impacts of the coronavirus crisis. In many ways, it will be easier for smaller banks to adjust because they’re often more in-touch with their clients and able to maintain more personal relationships.

4. Look Locally

Community banks should remember their strengths. Having a closer connection to local businesses and consumers will play an important role in the financial fallout of the coronavirus outbreak.

Consider how your state and local government is responding and how it’s affecting businesses in your area. We are seeing a variety of COVID-19 responses throughout the country, ranging from California to Arizona in terms of boldness of measures. There’s also a difference between urban versus rural responses, with cities being predictably more affected.

Looking Ahead

No one can foresee what will happen next or how long this will last, but banks need to think about what they can do to mitigate the impact for their clients and themselves. There is a light at the end of the tunnel – but how bright is it and when will we get there? If we can all be more nimble and skillful about the way we manage our organizations, we can help businesses get through this together.

In my next blog post in this three-part series, I will discuss some options on how to manage and protect your portfolio. It’s going to get bad, but there are ways to prepare.

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